Modelling volatility spillovers for bio-ethanol, sugarcane and corn spot and futures prices

Chang, Chia‐Lin; McAleer, Michael; Wang, Yu-Ann

doi:10.1016/j.rser.2017.07.024

Cited by 52 publications

(39 citation statements)

References 43 publications

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“…The analysis of univariate and multivariate conditional volatility models below is a summary of what has been presented in the literature (see, for example [18] Caporin and McAleer (2012) [19] Chang et al (2015), and especially [20] Chang et al (2017)), although a comprehensive discussion of the Full and Diagonal BEKK models is not available in any published source. In particular, the application of the quasi likelihood ratio (QLR) test of the Diagonal BEKK model as the null hypothesis against the alternative hypothesis of a Full BEKK model does not seem to have been considered in the literature.…”

Section: Methodsmentioning

confidence: 99%

Volatility Spillovers and Causality of Carbon Emissions, Oil and Coal Spot and Futures for the EU and USA

2017

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Recent research shows that the efforts to limit climate change should focus on reducing the emissions of carbon dioxide over other greenhouse gases or air pollutants. Many countries are paying substantial attention to carbon emissions to improve air quality and public health. The largest source of carbon emissions from human activities in some countries in Europe and elsewhere is from burning fossil fuels for electricity, heat, and transportation. The prices of fuel and carbon emissions can influence each other. Owing to the importance of carbon emissions and their connection to fossil fuels, and the possibility of Granger causality in spot and futures prices, returns, and volatility of carbon emissions, crude oil and coal have recently become very important research topics. For the USA, daily spot and futures prices are available for crude oil and coal, but there are no daily futures prices for carbon emissions. For the European Union (EU), there are no daily spot prices for coal or carbon emissions, but there are daily futures prices for crude oil, coal and carbon emissions. For this reason, daily prices will be used to analyse Granger causality and volatility spillovers in spot and futures prices of carbon emissions, crude oil, and coal. As the estimators are based on quasi-maximum likelihood estimators (QMLE) under the incorrect assumption of a normal distribution, we modify the likelihood ratio (LR) test to a quasi-likelihood ratio test (QLR) to test the multivariate conditional volatility Diagonal BEKK model, which estimates and tests volatility spillovers, and has valid regularity conditions and asymptotic properties, against the alternative Full BEKK model, which also estimates volatility spillovers, but has valid regularity conditions and asymptotic properties only under the null hypothesis of zero off-diagonal elements. Dynamic hedging strategies by using optimal hedge ratios are suggested to analyse market fluctuations in the spot and futures returns and volatility of carbon emissions, crude oil, and coal prices.

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Section: Methodsmentioning

confidence: 99%

Volatility Spillovers and Causality of Carbon Emissions, Oil and Coal Spot and Futures for the EU and USA

2017

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“…McAleer et al (2008) showed that the QMLE of the parameters of the DBEKK model were consistent and asymptotically normal, so that standard statistical inference on testing hypotheses is valid (or further details, see Chang et al, 2018). It should be emphasized that the QMLE of the parameters in the conditional means, namely equations (1) and (5), and the conditional variances, namely equations (4) and (7), will differ as the multivariate models, (5) and (7), respectively, are estimated jointly, whereas the univariate models, (1) and (4), respectively, are estimated individually.…”

Section: Vectorization Of a Full Matrixmentioning

confidence: 99%

The Fiction of Full BEKK: Pricing Fossil Fuels and Carbon Emissions

Chang

McAleer

2018

SSRN Journal

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The purpose of the paper is to (i) show that univariate GARCH is not a special case of multivariate GARCH, specifically the Full BEKK model, except under parametric restrictions on the off-diagonal elements of the random coefficient autoregressive coefficient matrix, that are not consistent with Full BEKK, and (ii) provide the regularity conditions that arise from the underlying random coefficient autoregressive process, for which the (quasi-) maximum likelihood estimates (QMLE) have valid asymptotic properties under the appropriate parametric restrictions. The paper provides a discussion of the stochastic processes that lead to the alternative specifications, regularity conditions, and asymptotic properties of the univariate and multivariate GARCH models. It is shown that the Full BEKK model, which in empirical practice is estimated almost exclusively compared with Diagonal BEKK (DBEKK), has no underlying stochastic process that leads to its specification, regularity conditions, or asymptotic properties, as compared with DBEKK. An empirical illustration shows the differences in the QMLE of the parameters of the conditional means and conditional variances for the univariate, DEBEKK and Full BEKK specifications KeywordsRandom coefficient stochastic process, Off-diagonal parametric restrictions, Diagonal BEKK, Full BEKK, Regularity conditions, Asymptotic properties, Conditional volatility, Univariate and multivariate models, Fossil fuels and carbon emissions. JEL Classification 1 AbstractThe purpose of the paper is to (i) show that univariate GARCH is not a special case of multivariate GARCH, specifically the Full BEKK model, except under parametric restrictions on the off-diagonal elements of the random coefficient autoregressive coefficient matrix, that are not consistent with Full BEKK, and (ii) provide the regularity conditions that arise from the underlying random coefficient autoregressive process, for which the (quasi-) maximum likelihood estimates (QMLE) have valid asymptotic properties under the appropriate parametric restrictions. The paper provides a discussion of the stochastic processes that lead to the alternative specifications, regularity conditions, and asymptotic properties of the univariate and multivariate GARCH models. It is shown that the Full BEKK model, which in empirical practice is estimated almost exclusively compared with Diagonal BEKK (DBEKK), has no underlying stochastic process that leads to its specification, regularity conditions, or asymptotic properties, as compared with DBEKK. An empirical illustration shows the differences in the QMLE of the parameters of the conditional means and conditional variances for the univariate, DEBEKK and Full BEKK specifications.

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“…In what follows are the regression equations for three univariate conditional volatility models that are used to estimate the expected rate of change in the number of Chinese tourists. For a more detailed derivation, the interested reader may refer to McAleer (2014), and Chang, McAleer and Wang (2018).…”

Section: Olsmentioning

confidence: 99%

An Event Study of Chinese Tourists to Taiwan

2018

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The number of Chinese tourists visiting Taiwan has been closely related to the political relationship across the Taiwan Strait. The occurrence of political events and disasters or accidents have had, and will continue to have, a huge impact on the Taiwan tourism market. To date, there has been relatively little empirical research conducted on this issue. In this paper, tourists are characterized as being involved in one of three types of tourism: group tourism (group-type), individual tourism (individualtype), and medical cosmetology (medical-type). We use McAleer's (2015) fundamental equation in tourism finance to examine the correlation that exists between the rate of change in the number of tourists and the rate of return on tourism. Second, we use the event study method to observe whether the numbers of tourists have changed abnormally before and after the occurrence of major events on both sides of the Strait. Three different types of conditional variance models, namely, GARCH (1,1), GJR (1,1) and EGARCH (1,1), are used to estimate the abnormal rate of change in the number of tourists. The empirical results concerning the major events affecting the changes in the numbers of tourists from China to Taiwan are economically significant, and confirm which types of tourists are most likely to be affected by such major events. KeywordsEvent study, Abnormal rate of change, Chinese tourists, OLS, GARCH, GJR, EGARCH, Tourism finance. JEL Classification AbstractThe number of Chinese tourists visiting Taiwan has been closely related to the political relationship across the Taiwan Strait. The occurrence of political events and disasters or accidents have had, and will continue to have, a huge impact on the Taiwan tourism market. To date, there has been relatively little empirical research conducted on this issue. In this paper, tourists are characterized as being involved in one of three types of tourism: group tourism (group-type), individual tourism (individual-type), and medical cosmetology (medical-type). We use McAleer's (2015) fundamental equation in tourism finance to examine the correlation that exists between the rate of change in the number of tourists and the rate of return on tourism. Second, we use the event study method to observe whether the numbers of tourists have changed abnormally before and after the occurrence of major events on both sides of the Strait. Three different types of conditional variance models, namely, GARCH (1,1), GJR (1,1) and EGARCH (1,1), are used to estimate the abnormal rate of change in the number of tourists. The empirical results concerning the major events affecting the changes in the numbers of tourists from China to Taiwan are economically significant, and confirm which types of tourists are most likely to be affected by such major events.

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Modelling volatility spillovers for bio-ethanol, sugarcane and corn spot and futures prices

Cited by 52 publications

References 43 publications

Volatility Spillovers and Causality of Carbon Emissions, Oil and Coal Spot and Futures for the EU and USA

Volatility Spillovers and Causality of Carbon Emissions, Oil and Coal Spot and Futures for the EU and USA

The Fiction of Full BEKK: Pricing Fossil Fuels and Carbon Emissions

An Event Study of Chinese Tourists to Taiwan

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